Jhunjhunwala stock: Canara Bank up 6% today. Where is this PSU bank share headed?

Shares of Canara Bank Ltd climbed 6 per cent in Friday's trade after better-than-expected September quarter results. Analysts said Canara's profit growth at 43 per cent was driven by lower provisions while NII growth at 20 per cent YoY was largely in line with expectations. Net interest margin (NIM) eased a bit sequentially, but was along expected lines.

"Canara Bank reported an in-line performance, with earnings growing at a steady run rate led by stable revenue and lower provisions. Asset quality improved further as gross NPA and net NPA ratios moderated. NIMs compressed 5bp QoQ; however, we expect margins to remain broadly stable going forward as MCLR re-pricing offsets the pressure on funding costs," Motilal Oswal Securities said.

Rekha Rakesh Jhunjhunwala held 37,597,600 shares or 2.04 per cent stake in the PSU Bank as on September 30. She has retained her stake in the lender for at least three quarters now.

Kotak Institutional Equities maintained its 'Buy' rating with fair value of Rs 425 against Rs 400 earlier. It expects delinquencies for Canara Bank to remain muted in the current benign environment. "As a result, the bank is likely to maintain high return ratios, driven by a steady decline in credit cost, offsetting the impact of any pressure on its margins. Along with this, a high financial leverage will support the sustainability of the mid-to-high teen RoEs over the medium term," it said.

Kotak said Canara Bank's business momentum is strong, as the bank is delivering healthy mid-teen growth. "The bank has seen a significant re-rating over the past few quarters, thereby narrowing the valuation gap with best-in-class peers. A further re-rating will be contingent on the re-rating of the PSU banking space as a whole," it said.

The bank clocked 42.8 per cent YoY jump profit at Rs 3,606 crore compared with Rs 2,525.5 crore in the same quarter last year. NII for the quarter was up 20 per cent at Rs 8,903 against Rs 7,433 crore YoY. Gross NPA ratio slipped to 4.76 per cent against 6.37 per cent in the same quarter last year.

Canara Bank's Q2 loan growth was led by corporate, retail and agri segments and the outlook remains steady. Slippages and the SMA book improved sequentially, which supported the overall improvement in asset quality ratios.

Arihant Capital Markets said Canara Bank has shown an overall positive performance with growth across various parameters. It expects the positive performance to continue in the second half of FY24, with some pressure on NIM, due to increasing interest expenses.

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